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Invoicing us for the markup on work not done by GC

maggers_1007 | Posted in General Questions on

Our GC says that we owe him the markup cost for a large master bedroom walkin closet that
his company did not do the work on. The GC told us that his company could not do the work
and stay at or near budget. The GC then checked with a company that he was doing business
with and they quoted a price way over the budget. My husband and I then found a company that did
the work near budget. Now our GC is invoicing us for the markup on the walkin closet line item. Is this right?

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Replies

  1. GBA Editor
    Martin Holladay | | #1

    Margaret,
    It all depends on the wording in your contract with the GC. So check your contract.

    You do have a contract, right?

  2. maggers_1007 | | #2

    No. Just written proposals that we verbally agreed to by allowing him to proceed with the work. We had a contract with him on the 1st job he did for us 3 years ago. He did an excellent job then and now. I don't know why we didn't questioned that. Perhaps we just assumed a contract wasn't necessary since we knew his work and work ethic and he didn't present one. I'm not sure why HE didn't have us sign one to protect him?? What to do ?

  3. GBA Editor
    Martin Holladay | | #3

    Margaret,
    Who supervised the work performed on the walk-in closet? If the GC supervised the work of the subcontractor, and if the GC is including the walk-in closet in the warranty, then of course the GC is entitled to the usual markup.

  4. maggers_1007 | | #4

    No, the GC did not supervise the work. He never met the sub. The sub, the owner of the company, did all the installation. No, the warranty does not cover the walk-in. The GC painted the room and put in the floor. These jobs had their own line item with markup which we paid.

  5. RMaglad | | #5

    Who paid the sub? him or you? If you paid the sub, does he know the amount? Is he claiming % of amount, or is he claiming for his time (administration and coordination) before you decided to outsource yourself?

  6. charlie_sullivan | | #6

    The arguments the that GC could make would be either that you broke the verbal contract by not doing that work through him, or that he deserves reimbursement for the time he spent trying to find a sub, as Ryan notes.

    Whose budget was he unable to stay within? His original quote to you, or your goal? Perhaps he was the one who broke the verbal contract by saying he couldn't do it for the agreed upon price?

    It might be a good compromise to ask him to bill you for his actual time in trying to arrange the sub.

  7. dankolbert | | #7

    As a GC, I can say that your contractor left himself very exposed. He has no ability to enforce anything, frankly, since he doesn't have a contract. So the ball's in your court.

  8. maggers_1007 | | #8

    We paid the sub and the GC doesn't know the cost. He's claiming his time in doing drawings of the walk-in. The mark up includes labor. He did not provide the labor nor did he spend time trying to find a sub.
    I think he deserves to have some payment for his time in doing drawings but not for the labor. So, I will present him with that and see if he will compromise on that.

  9. maggers_1007 | | #9

    The GC thinks I am questioning his honesty and he is "a bit appalled by it". He says the mark-up is baked into the quote and is non-negotiable. This response upsets me. We were not told that we would still have to pick up the labor even if we went with someone else who did the labor. I'm not sure right now how to handle this in a professional way. Any suggesdtions? Thanks.

  10. maggers_1007 | | #10

    The GC thinks I am questioning his honesty and he is "a bit appalled by it". He says the mark-up is baked into the quote and is non-negotiable. This response upsets me. We were not told that we would still have to pick up the labor even if we went with someone else who did the labor. I'm not sure right now how to handle this in a professional way. Any suggesdtions? Thanks.

  11. davidmeiland | | #11

    It's not clear to me whether the closet system was part of an original estimate, or was an add/change requested by you. Did the GC originally include a line item amount for the closet finish, and find he could not honor it, or did he price it as a change later? Why did he provide a price that he could not honor later? Why was it not immediately apparent that the budget would be blown if the closet was included?

    In some cases, GCs price the entire job up front, including their overhead and profit, and if you remove parts of the scope by change order during the project, they still get the overhead and profit on the removed parts of the scope. I have run jobs that way in my own business, and while working as a PM for other companies before that. We set a fee to do the job, and you can't give us a haircut on that fee by cutting out parts of the job.

    The reasoning is that the work of removing those parts of the job, and making all the needed adjustments, takes time and effort and we want to be compensated for that. I have been in plenty of situations where I spent a couple of hours or more of my time to remove $100 in work from a project. The work involved in changing course can be substantial. I have to cancel materials I ordered. I have to call subs or meet them on the job to go over changes. I have to tell the carpenters to do something different than I told them last time. Keeping track of multiple revisions and making sure the right thing happens is challenging and risky. My life is easier and less of my time is used if you don't change your mind about something.

    Now, if the GC priced out the closet originally, and then found he couldn't do it for the price he quoted, then he's caused himself a headache. My opinion is that if that happened, he should let go of that part of the scope, and you do it yourself without compensating him. If he did drawings that were used, fine, pay him for the drawings. But, he failed to deliver a part of the work for a stated price and should be glad you are not holding him to it.

    There is probably a lot more going on here than has been laid out so far.

  12. dankolbert | | #12

    You could well be right, Dave (although, really, what are the chances of that?) but I imagine you'd agree with me that it's the GC's job to make sure the terms of the agreement are clear to the client, not the other way around. It's doubly important when changes are made to the original agreement.

    On another forum David & I used to frequent, a sales specialist once said something that's always stuck with me - "your clients aren't trying to drive you crazy; they just don't know how to buy from you until you teach them." There should never be surprises presented with the final invoice. If he can show you that he in some way prepared you for this charge, than perhaps the fault is yours. But otherwise I'd say he made assumptions without running them by you.

  13. davidmeiland | | #13

    Dan, I know it's never happened before--and it casts me in a very questionable light--but I agree with you.

    The fact that this GCs customer is online asking if his business practices are fair means he has a problem, and more likely than not he failed to prevent that problem. I still say there's not enough information presented in this thread to make a decision, but hopefully he laid out clearly in advance that his markup would be due on the entire scope of work, even if parts of it were deleted at the customer's request.

    Now, I'm not sure how fair that would be if he blew it on part of his estimate and couldn't deliver a piece of it for the price quoted. You can't write a contract using an estimate that won't hold up, and then tell the owner they have to live up to their part while you don't live up to yours.

  14. dankolbert | | #14

    Esp. since there's apparently nothing in writing at all.

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